If you think that your business is too small to file a 1099 form then you might be wrong, very wrong! Apparently, there are many misconceptions about these forms circulating out there as the process of filing a 1099 form is complex and is easy to misunderstand, which can ultimately land you in trouble. So, in this blog we will be talking about some of the common misconceptions business owners have regarding 1099 forms and why processing a 1099 from is crucial for your business.
Generally, a 1099 form is an information return that you send to the IRS stating a certain amount you paid to a vendor in the last calendar year. The IRS then uses it to cross check if that vendor has listed that income in his tax return. As a business owner, receiving a 1099 form is no big deal as long as you file all your generated income on your tax return.
While you may also think about filing a 1099 form as more of a hassle than a necessity, here are some not-so-good practices that you, as a business owner, must avoid at all costs –
My business is too small for 1099!
The most common misconception about a 1099 form is that only big businesses need to file it. If you have paid a total amount of $600 to your vendor in the last calendar year than you need to file it. Regardless of size, you are required to review your vendor payments and file appropriate forms when possible.
My vendor doesn’t want me to file a 1099 form!
We often come across this remark when consulting our clients. If you have paid more than $600 in the last calendar year, the only possible reason to not file a 1099 form for this vendor is if its a corporation or a LLC. We recommend requesting a W9 form – a W9 form allows vendors to communicate to your their legal name, address, social security number and clarifies what kind of business entity they are. Request a W9 form complete with all required info from all your vendors to clear the air as not issuing 1099 forms for the payments made to vendors will only put you in the danger zone, and not them if an audit occurs!
Remember, only corporations and LCCs are exempted from being issued a 1099 form.
There is just too much paperwork involved!
Yes, there is a lot of paperwork involved! You need to issue 1099 forms to vendors and you need to report 1099 forms issued to you to the IRS. But handling an insane amount of paperwork that make your head pain is not a viable reason to not be compliant. After all, you and your business will only be held liable if any discrepancy is found by the IRS while matching the 1099 forms to the tax returns.
Consider outsourcing the whole 1099 reporting process to our fully compliant 1099 processing service! We can handle all your 1099 reporting requirements with ease and have been doing it for the past 7 years.